You’ve read the latest news and research on your favorite company. You’ve assessed the general outlook of the economy. You’ve been monitoring the price of your favorite company for some time now. You’ve taken every precaution you can think of and now you are ready. You double click the stock symbol and up comes an order entry panel. You carefully select how many shares you want and highlight the price as “Market” There is only one thing left to do and that is to click the “Send” button on the order panel.the chronicle of a change

The life of a trade undergoes a series of checks before it even reaches the markets. The first check starts at your computer screen. Is there enough money or Buying Power in this account to execute this trade? If the answer is no the trade will be stopped right then and there. Generally, your broker will update the trading server each night with your share positions and buying power. However, some Independent Software Vendors (ISVs), usually licensed by traders, don’t come with any rolling equity balance and leave it up to the broker to monitor the clients account. This is done in the Risk department where a report is generated every night or even on a live time basis to ensure traders do have enough equity or that the current positions held in the account can be paid for during an adverse price change.

You should keep in mind that once an order leaves your PC it still has to arrive at the brokers trading server. If you are using the internet to trade you are at the mercy of your Internet Service Provider (ISP) to deliver your order on a timely basis. Your broker has no power whatsoever or liability during that transit time. If there are bottlenecks and your order travels half way around the world before it reaches your broker that is the risk you take. You can of course upgrade your connection to a dedicated line but that can cost hundreds or thousands of dollars per month. However, this still does not mean your broker is liable for your order during this transit time either.the chronicle of a change

Once your order is filled the exchange notifies your broker that they have done a trade. You are then sent a message from your broker that you order is filled. You can now contemplate your next trade.

Your order then becomes subject to other checks such as whether or not the account number sent with the order does in fact exist in the brokers database. If not then it stops right there. Or checks whether or not the type of order you want to do is acceptable under your client profile. Suppose you want to sell a stock short but the brokers systems hasn’t permitted this order type for your account. This will stop the order immediately.

Once your order finally reaches the exchange a message is sent to the broker the order is received. The broker then passes along to you that the order is now working if there are no problems with your order based on the exchange trading rules. Yes there are more checks. Is the order flagged with the correct order type tags? Some exchanges don’t accept Market orders. Market orders are instructions to fill the order at any price immediately. You may not even know it but your Market order may actually be received as a Limit Market order which says ‘fill this order immediately at 5 price steps away from the current price’. For very liquid markets it won’t make a difference but for very thinly traded stocks your market order won’t get filled in its entirety and remain open in the market. Your broker has no power over this. They are subject to the rules of the exchange like anyone else. Remember they are only members. Another check made at the exchange level is that your order price is close to the current market price. Some exchange will only accept order 5 price steps away from the market and if it’s more the order is rejected. For example, the stock is trading at $100 and you place an order to buy at $106 because you want to make sure you get the shares. This is 6 price steps away (based on a $1 price step. Price steps vary depending on the price of the stock). The exchange will reject the order and you will have to start all over. Again, this is an exchange rule and your broker has no influence over this.

Now that your broker has received your order you are generally sent an Acknowledgement that the order was received. At this point your order becomes the brokers’ responsibility to send to the exchange in timely manner. The order hasn’t been sent to the exchange yet and the acknowledgements are time stamped. These trade acknowledgements serve to protect you and the broker during a trading dispute. You may have sent the order but the broker only knows about it when it has been received.

Your eyes quickly shift to the live-time share price and your mouse hovers nervously over the Send button. You look again at the order panel. Have I timed it right? Will the market move in my favor? Should I change the number of shares to trade? Again your eyes move back to the live-time share price. It is time. Your eyes again return to the order panel and with one last deep breath you click the Send button. Your eye’s dart back to the live-time share price and it suddenly flashes. Was that my trade? Did I get filled? You feverishly select your Portfolio button and there it is in simple type face your trade is complete. You smile and sit back confident that you have made a good trade and delight in the wonders of technology and how it can send an order and report a fill in less than a second.

Another check that usually falls to the Risk department’s discretion is something called a “Fat Finger” Limit. This limit can be set up on the server where your broker receives your orders and can even be setup on your trading application too as an additional check. Fat Finger implies that you have entered into your order panel a trade quantity larger than you wanted (or permitted) i.e. from 100 shares to 1000 shares. If your Fat Finger limit is 200 shares and you enter 1000 shares your trade won’t get to the exchange. The Risk department has a lot of power in determining what amount of trading exposure your account can handle. It’s always a good idea to try get to know the people in the Risk department. They are also the one’s that will sell-out or buy-in your account if they feel you cannot pay for your trades. If you have a good relationship with them and know who you are they may be more forgiving. Keep in mind that you have given them an idea of your risk profile based on the information you provided in account application form otherwise known as the “Know Your Client” form.

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